More than 55 million Americans have absolutely no emergency savings. That means unexpected car repairs, medical treatments, and surprise expenses can force them further into debt.
So, what would you do if there was a way to increase your savings and boost your income? You’d leap all over it, right?
Well, there is. And you don’t even need a lot of money to get started.
It’s called investing.
We know…you’re wondering how you can start investing when you’re still living paycheck to paycheck.
Read on! We’re going to go over how to start investing on the cheap.
Pay Down Your Debt
The best money move you can make is to pay down your existing debt before ever starting to invest. Why? Because debt means interest payments.
And the more interest you pay each month, the less cash you have to throw towards investments.
So, create a budget and find ways to cut back on your expenses whenever possible. Use the money you’re saving to pay more than the minimum payment on credit cards and loans.
The faster you pay down those balances, the better off you’ll be. And the more money you’ll have to start investing.
Pick the Right Approach
Start thinking about how active you want to be. Do you want to research, buy, and sell stocks on your own? Or would you rather set it up on autopilot?
There’s no right answer. You can make money with either approach and don’t have to have hundreds to invest up front.
If you choose to actively manage your investments, you’ll need to work with a trading platform. These give you access to stocks and other investments. If you want to make a trade, you’ll need to manage it.
And contrary to popular belief, you don’t have to save up for those high-cost investments. You can find plenty of stocks under 5 dollars to get started.
For investors who want a more passive approach, robo-advisors are the best option. These systems use an algorithm to find the best investments for your money and risk tolerance. They manage everything and all you need to do is check on your balance every now and then.
If you’re really living on a tight budget and don’t have that extra five bucks a week to spare, don’t panic.
You can still start investing…but you’ll do it with spare change. Think of it as micro-investing. You’re investing a few cents a day and growing your assets without putting a strain on your bank account.
These apps sync with your bank account and round your purchases up to a whole dollar amount. The spare change from rounding up gets invested through the app.
And this happens with every purchase you make. Over the course of the year, it adds up fast.
Though it might not be enough for you to retire on, it’s a great way to get your feet wet. Remember, each app charges a different management fee. So, make sure you read the details before signing up.
Reinvest Your Returns
Investing in stocks gives you access to dividend payments based on the number of shares you own. You’re free to use these payments however you see fit.
But instead of spending it, reinvest those returns.
Buy more shares of the stocks you love or diversify your portfolio. The important thing is to make that money work for you.
Remember, dividend payments are money you can’t count on. Some years are more successful than others.
Though this sounds like a downside, it’s not. You’ve already figured out how to live without the dividend payments in your bank account. So, put them to work instead of letting them sit at the bank!
Make Use of Retirement Accounts
There’s more to investing for beginners with little money than purchasing stocks. In fact, retirement accounts count. And everyone can and should have one.
These accounts let you contribute money out of your paycheck. That money then gets invested in a fund where it grows and earns interest.
As you continue to contribute, those funds earn more interest and grow even faster. And you don’t have to contribute a ton each month. Just 10 dollars out of each paycheck is a great place to start.
Keep in mind that retirement accounts lock your money away until retirement. You can use it if you need to. But you’ll have to pay an early with drawl fee and that can eat into your savings.
Invest in Continuing Education
Investing in yourself is still an investment in your future. And enrolling in a course that can further grow your career is relatively cheap.
Learning new skills gives you the tools you need to go after a higher paying job or get that promotion.
And the more money you earn, the more you’ll have to invest in other things. Imagine being able to routinely afford large contributions to your retirement plan. Or you could use that extra money to buy higher priced stocks.
Whatever your preference is, the more you can move up in your career, the better.
Final Thoughts on How to Start investing
There are options out there, no matter how much or little you have laying around. And if you’re wondering how to start investing, follow these tips and you’ll be on your way.
But there’s more to growing your savings and improving your personal finances than investing in the right stocks. Check out our latest posts for more helpful hints and take control of your bank account.